Teetering on the edge: Everything is not ok

Posted: July 1, 2016 in economy
Tags: , ,

A WEEK ago, as news of the vote in favour of Brexit sunk in, global markets tumbled. In the space of two days, the S&P 500 dropped more than 4%, while Britain’s FTSE 250 fell about 10%. But then, strikingly, equity prices reversed themselves. The S&P 500 is now higher than it was before the vote. The conventional wisdom has quickly flipped from the idea that Brexit was an immediate financial disaster to the notion that everything will be ok. Yesterday, Paul Krugman wrote that “the arguments for big short-run damage from Brexit look quite weak”. So, will everything be ok?Everything will not be ok.Things might or might not be ok in the long run; there are too many questions about when and how (and even whether) Brexit will actually occur. In the short run, there is plenty to worry about, and the evidence is written all over bond markets. Yields around the world were already extraordinarily low before the Brexit vote. In the days immediately after they plummeted. While equities have risen, bond yields have not. The yield on the 10-year US Treasury is 30 basis points below where it was on June 23rd. The real yield is close to zero. The 10-year gilt yield is below 1%. The yield on 10-year bonds in Germany, France and the Netherlands are basically zero. Falling yields on safe assets indicate some combination of falling expectations for growth, falling expectations for …

via Economic Crisis http://ift.tt/29a8VtR

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